Investors will likely remain cautious as the U.S. Federal Reserve begins a two-day meeting that’s expected to give an update on how the central bank thinks the world’s largest economy is faring.

The update will come as the International Monetary Fund revised its growth forecast for the U.S., saying that it thinks that the world’s largest economy will only grow at a modest two per cent this year, down from its earlier prediction of 2.7 per cent.

Last week, the World Bank also adjusted its estimates, slashing its 2014 global growth forecast to 2.8 per cent from 3.2 per cent, citing the long winter in the U.S. and the political crisis in Ukraine.

The Fed will also be taking in the latest data on the U.S., that continue to offer signs that the economy is steadily recovering.

The Labor Department reported that U.S. consumer prices increased in May by the largest amount in more than a year as the cost of food and gasoline showed big gains and airline fares jumped by the largest amount in 15 years. It says its consumer price index rose 0.4 per cent in May, the biggest one-month jump since a 0.6 per cent increase in February 2013.

But there were indications of a slowdown in the housing sector.

The pace of U.S home construction slipped in May with many Americans still struggling to afford new houses.

The U.S. Commerce Department says builders started work at a seasonally adjusted annual rate on 1.01 million homes. That was down 6.5 per cent from 1.07 million in April. Construction firms began work on fewer single-family houses, condominiums and apartments last month.

Meanwhile, commodity prices fell as the July crude contract dipped 51 cents to US$106.39 a barrel after running up last week.

Traders have been anticipating instability in the world’s oil markets as the situation in Iraq worsens.

In Iraq, about 300 U.S. soldiers are being positioned in and around Iraq to protect the U.S. Embassy and other American interests as U.S. President Barack Obama weighs options for dealing with the al-Qaida inspired militants who have captured a vast swath of the country’s north.

Last week, the militants captured two key Iraqi cities and reportedly carried out a massacre over the weekend. On Sunday, the militants posted graphic photos of truckloads of Iraqi soldiers that they apparently captured and killed and vowed to march on Baghdad.

The northern town of Tal Afar has become the latest to fall to the group, which has already captured Iraq’s second-largest city, Mosul.

Mosul lies in an area that is a major gateway for Iraqi oil. While the loss of the city has no immediate effect on oil exports, now at more than three million barrels a day, it adds to concerns over security and the country’s plans to expand oil production.

Despite the instability, traders are not flocking to other commodities.

August gold bullion lost $12.70 to US$1,262.60 an ounce, while July copper was unchanged at US$3.05 a pound.